Actionable Insights From APT's Financial Services Practice
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Keeping Credit Card Revenue Alive

January 22nd, 2010 | Posted by Jarred Brown in Uncategorized

Banks are scrambling now to react to upcoming legislation and “try to replace more than $50 billion in revenue wiped out by new rules that clamp down on certain business practices.” A recent article in the Wall Street Journal focuses on the impact of new rules on credit card interest rates. New rules go into effect in February and “will limit some interest-rate increases, require more disclosure to customers, and prohibit banks from raising interest rates on current balances unless a customer is at least 60 days behind in a payment”.

As a result of these changes, credit card issuers are trying different approaches to generate revenue including account statement fees, watering down rewards programs, and fees for inactive accounts. The danger in all of these is that you risk losing customers. The challenge is in finding the customers where you can introduce these tactics without increasing risk of attrition.

Each potential action should be tried in a subset of customers to understand how that tactic works and which types of customers respond negatively. This involves a rigorous, analytical approach of trying a new idea with a few customers, learning what works best with which customers, and then rolling out the action more broadly.

It is great to generate more revenue in the short term but disastrous if customer retention suffers in the long term.

Read more about optimizing deposit pricing using Test & Learn

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